Arm sticks to growth story

TECHNOLOGY group Arm Holdings has kept its profit growth story intact, although its revenues from shipments have fallen for the first time thanks to wider industry woes.

Lower-than-expected royalty payments spooked investors in the FTSE 100 group. The shares fell 33 1/2p to 236 1/2p, stripping £340m from Arm's market value.

Arm, which designs microchips for mobile phones, reported pre-tax profits in the quarter to 31 March rose 38% to £15.7m on sales up 30% to £42.1m.

The group said demand for its products appeared undiminished and that it expected to maintain its current quarter-on-quarter growth rates. Profits were ahead 13% on the previous three months, on sales up 5%. The figures reflected the global chip industry's wider troubles - as prices declined royalty revenues, or the fees Arm's customers pay it per chip, fell even though those clients shipped more products using Arm's designs.

Arm, which reports shipment figures three months in arrears, said its clients sold 110m chips using its designs in the fourth quarter of last year, an increase of 15% on the previous quarter. However, this translated into a 6% decline in royalty revenues to £6.4m versus the previous three months. That was below analysts' expectations of a 3% rise in royalties. As a percentage of total group revenue, royalties declined to 15% of sales.

With 22 new design licences sold in the first quarter, and further strong growth in its high-margin consultancy and services unit, the group said its longer-term outlook remained good. Arm also confirmed its move to US accounting standards.